Oil up almost 2% on OPEC cuts, USA sanctions

The Opec+ cuts are taking effect and US data is starting to reflect these changing market conditions. — Reuters file

The global oil market remains well supplied, the International Energy Agency said in its monthly market report on Wednesday, and output should still outstrip demand this year.

The Organization of the Petroleum Exporting Countries (OPEC) said on Tuesday that it had cut its output by nearly 800,000 bpd in January to 30.81 million bpd.

OPEC members along with allies including Russian Federation agreed in early December to trim production by 1.2 mbd from January 1, in a bid to eliminate a production glut and shore up prices.

According to IEA data Russian Federation made only 18 percent of its pledged cut of 0.23 mbd.

Saudi Arabia to reduce crude production by half a million bpd more.

The IEA said that compliance with the so-called Vienna Agreement was 86 percent by OPEC states, with Saudi Arabia, UAE and Kuwait cutting by more than promised.

Kazakhstan increased production, while Azerbaijan only cut 15 percent of what it had promised. Energy minister Khalid al-Falih on Tuesday told the Financial Times production would fall below 10 million bpd in March, more than half a million bpd below the target it agreed to as part of a global deal to limit supply.

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The oil price has risen by 20 percent so far this year, yet most of that increase materialised in early January, before the imposition of United States sanctions on Venezuela's energy sector.

The combination of the OPEC-led production cuts, the increased reduction by the Saudis and in a limited way, the sanctions against Venezuela are helping to underpin prices, but in order to put the market over the top, demand is going to have to increase.

World oil demand will grow more slowly this year, OPEC said, and non-OPEC production will rise more rapidly than expected.

In the report, OPEC cut its forecast for 2019 world economic growth by 0.2 percentage point to 3.3 percent and highlighted a range of headwinds, including a slowdown in global trade.

The sudden embargo on Venezuela's exports has therefore sent refiners in the United States and elsewhere scrambling to find alternative supplies compatible with their equipment.

"So far, there are no signs that other producers, e.g".

Most new supply is coming from the United States, where crude production rose by more than 2 million bpd a year ago to a record 11.9 million bpd, making the country the world's biggest oil producer ahead of Russian Federation and Saudi Arabia. "Saudi Arabia, are intending to push more barrels into the market to offset shortfalls" of heavier grades of crude, the IEA warned.

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